How India can tame the falling rupee

How India can tame the falling rupee

RBI will need to intervene to prevent a rupee slide as the currency is vulnerable because of a record high current account deficit.

The fall in the rupee to record lows has raised the prospect that the government or the central bank could take steps to support a currency seen particularly vulnerable because of a record high current account deficit.

Below are some measures the Reserve Bank of India and government could consider to protect the rupee.

Dollar-Window for Oil Companies

The RBI could open a dollar window for oil companies to buy dollars directly from the central bank instead of buying from markets, but it would drain foreign exchange reserves.

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Image: A worker counts Indian currency at a money changer.Photographs: Rupak De Chowdhuri/Reuters

How India can tame the falling rupee

The RBI could hold auctions to buy bonds from oil companies, providing them dollars or other non-rupee currencies, but the outstanding amount of oil bonds is small as the government has been giving direct cash subsidy to oil companies.

Asking Exporters to Buy Rupees

The central bank could ask exporters to convert part, or their entire, overseas foreign currency earnings in the market immediately, providing near-term relief to the rupee.

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Image: A currency trader works in front of a screen showing the value of the Indian Rupee against the US Dollar.Photographs: Vivek Prakash/Reuters